The Credit Union National Association (CUNA) appreciates the opportunity to submit comments in
response to the request from the Department of Housing and Urban Development (HUD) for input on how to
amend the current prohibition against the required use of affiliated settlement service providers for
residential mortgage transactions under the Real Estate Settlement Procedures Act (RESPA). These
changes would be intended to address practices in which certain homebuyers commit to using a home
builders affiliated mortgage lender in exchange for construction discounts or discounted upgrades
without sufficient opportunity to review the transaction or comparison shop among other lenders. CUNA
represents approximately 90 percent of our nations 7,700 state and federal credit unions, which serve
approximately 93 million members.

Summary of CUNAs Comments

CUNA supports HUDs efforts in closely reviewing these provisions, and we encourage HUD to
issue a proposal to ensure that consumers are fully protected when they purchase a home and are then
encouraged to use a specific lender or settlement service provider that is affiliated with the
homebuilder.

CUNA is concerned that the benefits provided to consumers in these situations may be illusory
and that consumers are not provided with an adequate amount of time to shop for mortgage loans and
settlement services, either from credit unions or other financial service providers, many of whom
may be able to provide loans and services at a competitive rate and cost, even taking into account
the benefits being provided by the homebuilder.

CUNA also believes that the disclosures required in these situations can be improved. For
example, we would support enhanced disclosures for first-time homebuyers who are referred to
affiliated service providers since they may not be knowledgeable about the home purchase process and
may, therefore, be more likely to rely on the homebuilder for objective advice.

DISCUSSION

Under RESPA, referrals to affiliated settlement service providers are generally prohibited on the
basis that the referrers return on investment in the affiliate would be considered a kickback or
otherwise a thing of value in exchange for the referral, which is prohibited under Section 8 of RESPA.
However, a referral will be permitted if the following conditions are met:

The referral is accompanied by a disclosure of the affiliation and estimated charges by the
provider to which the consumer is referred;

The consumer is not specifically required to use a particular settlement service provider;
and

The arrangement does not otherwise involve prohibited compensation.

Under current RESPA rules, the required to use condition is not violated if the consumer is offered
discounts or rebates for the purchase of settlement services from the affiliate, as long as it is
optional for the consumer to use the affiliate and the discount is truly a discount below the prices
that are otherwise available. Also, the discounted prices cannot be made up by charging higher costs
elsewhere in the settlement process.

In 2008, HUD issued a final rule that amended the Good Faith Estimate form, the HUD-1 and HUD-1A
settlement statements, and made other changes to the RESPA rules. The final rule also clarified that
the provisions regarding the required use of affiliated settlement service providers, specifically by
indicating that these provisions cover incentives as well as disincentives when providers impose a
penalty or other type of economic disincentive if the consumer uses a nonaffiliated provider.

HUD clarified these provisions out of concern that consumers have essentially been required to use
these affiliated providers because the timing of the contract precluded the buyer from shopping for
settlement service providers, the costs and interest rates offered were not competitive, and it has been
difficult to quantify certain of the discounts offered. However, litigation arose that challenged these
provisions of the final rule and, as a result, HUD withdrew these provisions. HUD has now issued an
advance notice of proposed rulemaking as the first step in reviewing these provisions and possibly
issuing a new proposal to address these concerns.

We support HUDs efforts in closely reviewing these provisions, and we encourage HUD to issue a
proposal to ensure that consumers are fully protected when they purchase a home and are then encouraged
to use a specific lender or settlement service provider that is affiliated with the homebuilder. We
understand that the current rules are intended to ensure that the consumer is fully aware of the
relationship between the homebuilder and the settlement service provider and that the use of the
affiliated service provider is voluntary.

However, we are concerned that this goal has not been achieved and that the full amount of the
benefits offered to the consumer may be illusory. We are also concerned that the consumer in these
situations is not provided with an adequate amount of time to shop for mortgage loans and settlement
services, either from credit unions or other financial service providers, many of which may be able to
provide loans and services at a competitive rate and cost, even taking into account the benefits being
provided by the homebuilder.

Although the current RESPA rules provide protections in these situations, we believe there will
always be at least a perceived conflict of interest when a homebuilder refers a consumer to an
affiliated service provider, regardless of the benefits and convenience being provided to the consumer.
The homebuilder clearly benefits financially when the affiliated provider is used and, in these
situations, there have been no indications that these financial benefits have not invariably taken
precedence over the best interests of the consumer.

Although we are concerned about the interests of the consumer in these situations, we are not
necessarily suggesting that these practices be banned. We support HUDs approach of closely studying
these issues to determine if the consumers interests are being served and what changes can be made in
the RESPA rules to ensure this result. For example, we believe the analysis of data that compares the
performance and characteristics of loans procured from affiliated providers with loans obtained from
arms-length lenders would help in these efforts.

We also believe that the disclosures required in these situations can be improved. For example, we
are particularly concerned with first-time homebuyers who may not be familiar with the home purchase
process and the wide variety of financing options that are available. These individuals may be more
likely to rely on the homebuilder for objective advice and may not be as likely to explore other
options. For this reason, we would support enhanced disclosures for first-time homebuyers who are
referred to affiliated service providers.

Thank you for the opportunity to comment on how HUD may clarify the current prohibition against the
required use of affiliated settlement service providers for residential mortgage transactions under
the RESPA rules. If you have questions about our comments, please contact Senior Vice President and
Deputy General Counsel Mary Dunn or me at (202) 638-5777.